Source: DLNews; Translated by: Baishui, Golden Finance
The election of 720 new MPs could mean changes to the EU’s carefully crafted encryption regime.
Important crypto legislation awaits new members of the European Parliament.
As the industry implements new laws, the focus may turn to blockchain technology.
European Union elections begin Thursday. For cryptocurrencies, that means key lawmakers could lose their seats in the new 720-member parliament, ushering in a turbulent period for the industry’s policy agenda.
While cryptocurrency has become an issue in the U.S. presidential election, it remains a less popular topic in European campaigns.
Still, over the past five years, the European Union has methodically addressed the challenge of crypto assets by adopting a comprehensive regime called MiCA, while European leaders have also set up a small but symbolic body to oversee the rollout of blockchain infrastructure.
A delicate balance
But how the new parliament will take over from the previous one remains an open question until the dust settles this weekend, with cryptocurrency experts closely watching how lawmakers handle the delicate balance between regulation and innovation.
“There seems to be a recognition that while regulation is important and has a role to play, it can also go too far and be seen as a hindrance,” noted Mark Foster, head of EU policy at the Crypto Innovation Commission.
The cryptocurrency industry will be watching to see who will fill several key roles in the new parliament.
For example, the Parliamentary Committee on Economic and Monetary Affairs has played a crucial role in amending and developing crypto legislation over the past five years.
It lays down MiCA (Market Regulation for Crypto-Assets) and rules to prevent money laundering.
Each parliamentary committee has a chairperson who coordinates the work of groups of dozens of lawmakers who focus on specific areas.
The presidents also wield a delicate influence in the so-called trilateral negotiations, the final and most delicate part of the joint drafting of laws between EU institutions.
The Civil Liberties Committee, the Justice and Home Affairs Committee, and the Internal Market and Consumer Protection Committee have had an influence on encryption legislation.
Parliament is key
Other key positions are coordinators of parliamentary parties, which cover the political spectrum.
The coordinator distributes legislative reports within the group and decides who will lead bill negotiations.
While experts expect a shift toward the far right in the upcoming elections, the center-right European People's Party still holds the largest share in the polls.
The second-largest group is the left-wing Socialists and Democrats, whose MEPs have a history of challenging crypto industry advocates.
Unfinished draft law
There are a number of unfinished draft laws before the elections, which require a rapporteur, a chief negotiator appointed by Parliament.
The digital euro, a digital currency operated by the ECB, would also require a new parliamentary leader if German MEP Stefan Berger fails to return to complete the process.
Other payment services and financial data legislation will also need a new MEP to take the lead.
The Payment Services Regulation will be critical in determining whether issuers of fiat stablecoins or e-money tokens need to comply with more onerous measures than those proposed in MiCA.
Moreover, the newly constituted legislators on the committee can redraft the work done in the previous legislative session according to their own preferences.
DeFi and Tokenization
The European Commission will report on progress in decentralized finance and NFTs and assess any risks the ecosystem may pose to consumers and markets.
The MiCA framework largely excludes these two features of the crypto industry and focuses on service providers. Instead, the Commission will decide whether additional legislation is needed based on its findings.
The DeFi and NFT report will be published in December and will include insights from European financial market and banking regulators.
But potential policy action on DeFi may be stymied by another trend engulfing the sector: tokenization.
“If we have large banks and market infrastructure moving into the tokenization of securities, debt instruments and deposits, then the right framework needs to be in place,” Foster said.
Crypto legislation in Europe
MiCA, which covers licensing requirements for stablecoin issuers as well as cryptocurrency companies to protect the market and consumers, will go live in phases starting at the end of June.
Under the Digital Operational Resilience Act, financial institutions (including cryptocurrency service providers) will also need to comply with enhanced IT security requirements from 2025.
The DLT pilot project is another project in the European Commission’s digital finance package. It aims to allow market participants to try tokenized financial instruments, but has not had much success.
Additionally, Europe has enacted cryptocurrency-focused anti-money laundering rules to collect data on senders and receivers of transactions under the Funds Transfer Regulation.
A separate anti-money laundering regulation also covers crypto services, as these entities must comply with the EU’s latest regime for the private sector.
Now, top officials are calling for a slower pace of regulation to give the tech and financial sectors a chance to implement a raft of new laws targeting them.
Blockchain, not cryptocurrency
“Over the next five years, during this legislative cycle, we’re going to see a lot more focus on DLT and its underlying technology,” Foster said.
This could range from decentralization, digital identities and wallets, or transforming financial market infrastructure to provide features such as instant settlement to remove intermediaries.
In addition, these lawmakers will need to approve the next head of the European Commission, Europe's executive body.
EU budget
The next head of the European Commission will be nominated by EU member states and then elected by the European Parliament, a process that will take place after the summer.
The new European Commission president (most likely still the current president, Ursula von der Leyen) and the commissioner leading the finance and technology sectors will be responsible for any new legislation that could affect cryptocurrencies or blockchain.
The Commission also plays an important role in allocating the EU budget to achieve its long-term goals for digitalization or sustainability.
These include projects such as a blockchain infrastructure designed to underpin European governments, known as Europeum.
It also includes updating internet infrastructure and other initiatives to digitize services or businesses.
“This is an important factor in enabling citizens to use Web 3 and crypto products and services,” Foster said.
